40,000 households left confused due to residence obligation

Apartment A in Incheon was supplied under the price regulation system in 2021. With its price of 11 million won per 3.3㎡, it was cheaper than Apartment B nearby (16 million won per 3.3㎡) and had a lot of demand. However, with the apartment ready for move-ins in April next year, it is the opposite. As apartment prices continued to fall due to the economic recession, Apartment B’s price dropped to 11 million won. This means that Apartment A’s price could be lower than its initial price by the time that move-ins begin.

“If the obligation of actual residence is not abolished, it would be nice as we can sell apartments at fair prices,” future residents of Apartment A say these days. If the obligation of actual residence is violated, residents are required to sell apartments back to Korea Land and Housing Corporation (LH). In such a case, the sale prices are set to the initial prices plus interest on fixed deposits, which guarantees the initial prices and some profits. “Some residences say that they will violate the actual residence obligation and sell their apartments back to LH to avoid losses as prices of nearby apartments dropped quite significantly,” said a local realtor.

As the abolishment of the actual residence requirement for affordable housing units was not passed during a regular session of the National Assembly in December, confusion in the market is growing. Under the current situation, those who subscribed for housing based on the government’s announcement in January should come up with hundreds of millions of won to pay the balance or give up their housing by losing down payment. In some cases, like Apartment A, people are willing to intentionally violate the actual residence obligation.

The government and the National Assembly are criticized for ignoring the market confusion caused by a short-sighted regulation introduced during the housing boom.

According to LH on Sunday, there were about 550 consultations on the sale rules due to violating the actual residence obligation by October this year. “We received a lot of calls from regions like Incheon where initial housing prices are lower than market prices, asking how much they can receive for selling their apartments back to LH,” said a member of LH. The actual residence obligation is a system where those who bought apartments under the price regulation system are required to reside in the said apartments for two to five years. If they move during this period, they should sell their apartments back to LH. Those who fail to do so are subject to imprisonment for up to one year or a fine not exceeding 10 million won.

“The actual residence obligation has many defects as it was developed without considering the market recession scenario,” said Professor Lee Chang-moo of the Urban Planning Department of Hanyang University. “As the move-in volume is expected to drop significantly next year in Seoul and other regions, the relevant regulations should be quickly amended to allow apartments under the price regulation system to be rented for lease on a deposit basis or monthly rent or sold.”


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